What the Breakup of Live Nation-Ticketmaster Teaches Us About the Market

We’ve all been there.

You triple-check your log-in, have your card at the ready, and watch the minutes tick by until 9 o’clock. Over and over you read the instructions, “do not refresh the page” and “you are in the queue” will surely appear in your dreams tonight. Then the glorious words appear: 

“You’re next.” 

Only one person stands between you and the greatest night of your life.

But you’re not so lucky.

By the time you’re prompted to pick a section and quantity, there would appear to be no tickets left. Over and over again the page loads only to produce the same answer: “We couldn’t find the tickets you searched for.” Or even worse, all the remaining tickets are astronomically expensive. You feel betrayed. 

That’s when you realize the truth: Ticketmaster doesn’t care about you or the frantic, insatiable Taylor Swift fans that rode into battle last month only to meet the brute force of an oversold fan pre-sale, overwhelmed servers, and surge pricing.

So, how did we get here and will it ever get better?

To answer this question, we have to go back to 2009 when Ticketmaster was allowed to merge with its greatest frenemy: Live Nation.

"The Story of Us”

Live Nation came from humble beginnings. Founded as SFX Entertainment, it started as two small concert promoters and went on to become an international powerhouse via dozens of acquisitions. By the early 2000s, Live Nation owned and operated 127 concert venues, had a thriving artist management business, and was definitely the most powerful promoter in the game. Ironically, the company’s strategy of combining regional concert promoters and venues was meant to wrestle power away from ticketers, namely Ticketmaster.

Ticketmaster spent the early aughts buying up every up-and-coming player in the ticketing market, especially if they had figured out how to sell tickets online. This was under the direction of its parent organization InterActiveCorp — better known as IAC — an infamous holding company that bought, developed and spun off a whole host of businesses including Match Group, Vimeo, LendingTree, and TripAdvisor. In 2008 alone, Ticketmaster picked up ticketing system developer Paciolan Inc., UK-based secondary marketplace Getmein.com, and American reseller TicketsNow. All of these caught the attention of antitrust regulators and all were eventually approved. A few months later, Ticketmaster and Live Nation announced their intention to merge which made many industry officials incredibly nervous.

Prior to 2009, event promoters and ticketing providers were locked in an eternal struggle. It was the responsibility of the promoter to arrange and advertise the tour and then negotiate ticket prices and terms with a ticket provider. In exchange, the ticketer collects some fees and provides a marketplace in which tickets can be sold. Ideally, there would be lots of ticketers to negotiate with and this competition would keep prices reasonable. However, Ticketmaster had done away with the competition and was overseeing more than 80% of the concerts in the United States. In fact, Live Nation was Ticketmaster’s biggest customer. Even more surprising, Live Nation had become so exasperated with Ticketmaster that it terminated its contract with them in 2007 and attempted to establish its own ticket infrastructure with surprising success. 

The impending merger of Ticketmaster and Live Nation definitely spelled trouble for the events industry which interestingly had already undergone one form of consolidation. Prior to Live Nation, artist management companies operated independently of promoters. This allowed artists and their teams to have greater control of touring schedules, venue selection, and compensation. But under CEO Irving Azoff, Live Nation began to buy up managers which had impressive clientele starting in 2005. By 2008, Live Nation controlled 200 marquee artists and bands including Miley Cyrus, Willie Nelson, Van Halen, Neil Diamond, Christina Aguilera, Kid Rock, Maroon 5, and the Kings of Leon. Now, if any of these players wanted to go on tour, they would likely have to do so in Live Nation venues, removing their ability to negotiate for greater pay or a certain location.

This consolidation continues today. Live Nation now controls 140 managers worldwide and more than 500 acts. Think of it as part one in Azoff’s plan to create “live music’s answer to Amazon”.

“I Knew You Were Trouble”

As you can see, it seemed pretty obvious that allowing the largest event promoter and ticketing provider to combine was a pretty bad idea. And yet, here we are with the merged entity called Live Nation Entertainment.

For this, we can thank Christine Varney, the head of the DOJ Antitrust Division in 2009. She was responsible for negotiating the merger which did have to make some concessions to appease the Obama administration. These included requiring Ticketmaster to sell Paciolan to Comcast and license its software to its biggest rival AEG in the hopes of creating healthy competition. The combined organization was instructed to not retaliate against venues for using another ticketing provider or use ticketing data for concert promotion or management. Varney sympathized with concerns over consolidation but stated “many of them are not antitrust concerns.”

To her credit, Varney’s conditions were much harsher than anything produced under her predecessors. Since the Regan administration, the DOJ had adopted the Chicago School policy, believing markets are self-correcting and government intervention is more harmful than beneficial. This led to decades of hands-free driving with mixed results.

However, more than ten years down the line it would appear Varney’s terms did little to curb Live Nation and Ticketmaster’s power. Ticket prices have more than tripled since their union. This failure all comes down to one thing: the U.S. government’s inability to monitor and enforce antitrust measures.

In 2019, the Trump administration found that almost immediately after signing the merger agreement, Live Nation was in violation of it. There have been repeated reports of the company bullying smaller independent venues, forcing them to adopt Ticketmaster’s service or refusing to allow Live Nation artists to perform there. This has insured competition never emerged; Paciolan has less market share than it did in 2009. It’s also impossible to know if Live Nation and Ticketmaster are adhering to data-sharing rules.

Worse still, ballooning ticketing fees now make up more than half of Live Nation’s earnings, an all-time high. When consumers complain about these, Ticketmaster tries to reflect some of this outrage by reminding them that prices are determined “in collaboration with our clients” who “share in a portion of the fees we collect.” Of course, this response fails to acknowledge that its clients are venues, promoters, and artists, all of which Live Nation controls. Is it still called sharing if you’re doing it with yourself?

Most shocking of all, a Canadian investigation found that Ticketmaster allows scalpers to buy up millions of tickets a year, in violation of its own policy, as it earns more money when these are sold on Ticketmaster’s own secondary markets.

"You're Not Sorry”

Everyone’s thinking it so we may as well come out and say it: Live Nation Entertainment is a monopoly. It controls 80% of the ticketing market and more than 70% of the promoter market, but what does that mean from an investing point of view?

Unfortunately, this is an instance in which consumers and investors are in opposition to one another. Good investors look for moats, a monopoly is the moatiest of all moats. Since joining forces, Live Nation and Ticketmaster finally have the financials of a business in which you’d want to invest. For the first time in its history, it achieved profitability in 2019 for two consecutive quarters before the pandemic sent it spiraling. It routinely has healthy revenue growth of around 12% and is in an expanding market. Not to mention, the stock has risen more than 900% since the merger was approved. But I suppose if you held shares you’d have to be ok knowing you hold stock in the bane of everyone’s life.

However, the Live Nation-Taylor Swift saga raises another more pressing question: what happens to the market if antitrust regulators are granted more power? 

Because Live Nation certainly isn’t the only monopoly in our midst, they’ve been popping up since the 1980s. We know regulation is something the current administration is interested in and President Biden’s additions to the Justice Department have a history of clashing with corporate America. This includes the lead of the antitrust division Jonathan Kanter.

Since the Chicago School’s way of thinking gained popularity, the number of mergers and acquisitions in the United States has skyrocketed while the number of publicly traded businesses has steadily fallen. This places more and more power in the hands of a few, key companies that make a phenomenal amount of money. According to a landmark study conducted by economist David Autor, the more market share a company controls the higher its profit margins will be. This is because firms with large competitive advantages can generate more revenue with fewer staff; their scale gives them efficiency.

When a lot of companies do this, it can have a huge impact, like changing the makeup of the country’s GDP or prompting the stock market to go on a sustained rally. When profit margins remain high, investors are rewarded with stock buybacks. If the Biden administration were to embark on a radical period of regulation it would leave a pronounced mark on the market.

"Change (Taylor’s Version)”

Consolidation is happening in virtually every sector: gaming, media, healthcare, social media, telecommunications, and airlines. You name it, it’s been consolidated, and this has been good for investors but often bad for consumers. It would appear, there is finally enough political and public interest in regulation that things may finally be coming to a head. 

The Justice Department opened an investigation into Live Nation Entertainment after the tears of faithful Swifties flooded their offices earlier this year. Not to mention, the investigation being led by the U.S. Senate antitrust panel. According to Minnesota Senator Amy Klobuchar, a member of this panel, “the high fees, site disruptions and cancellations that customers experienced shows how Ticketmaster’s dominant market position means the company does not face any pressure to continually innovate and improve”. 

Harsh critics are hoping for a breakup of Live Nation and Ticketmaster but others would settle for greater enforcement of the restrictions outlined in their merger agreement. However, the Trump administration tried this approach in 2019, appointing a special investigator to constantly oversee the corporation, with little impact. If Ticketmaster and Live Nation were forced apart it could spell disaster for shareholders particularly if the businesses’ various segments were spun off. It is not inconceivable that the DOJ would demand the separation of artist management, ticketing, secondary ticket markets, and promotions, leaving them all vulnerable to new competition. 

The coming months will be key for understanding how the present and future administrations will handle the monopoly climate and what this will mean for investors. One thing’s for sure: we’ve never before seen anything like this. In 1999, Warren Buffet stated that it would be “wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%.” His reasoning was this would hurt workers and “justifiably raise political problems”. It would appear, these problems have just been raised. 

Update 23/5/2024: 

The United States’ Justice Department (DOJ) is set to file a competition lawsuit against Live Nation, joining a number of suits already filed by state attorneys general. This marks the conclusion of the DOJ’s antitrust investigation into the concert promoter which stands accused of squeezing out competitors in the hopes of raising ticket prices. 

At this time, TicketMaster and Live Nation have not responded to the news.